YEAR END PENSION PLANNING

Take advantage of the pension carry forward rules in order to benefit from any unused allowances from the previous three tax years.  This is generally the difference between the old £50,000 annual pension allowance and your pension input that year and can be added to your relief for 2015/16.  Note that the annual pension allowance is £40,000 for 2015/16 and 2016/17, although those individuals with income over £150,000 will have their annual pension allowance reduced by £1 for every £2 over £150,000.

To avoid losing pension relief brought forward from 2012/13 which lapses 5 April 2016, consider making an additional pension payment before 5 April 2016.  If your pension input was £24,000 in 2012/13 then there is £26,000 unused relief available to add to your 2015/16 allowance. You would need to make gross pension contributions of at least £66,000 (£40,000 plus £26,000) to avoid losing this generous relief.

Restricted relief for interest

From 2017 measures are being phased in that will restrict the amount of tax relief that landlords will be able to claim in respect of finance costs, such as mortgage interest and interest on loans to buy furnishings and fixtures.  For 2017/18 and later tax years, it will no longer be possible to obtain tax relief on all finance costs at higher and additional rates of tax.  Relief will be restricted progressively such that from 2020/21 onwards all finance costs will be deductible only as a basic rate tax reduction.  Other things being equal this will result in more tax being paid on rental profits by landlords who pay tax at the higher or additional rates.

Stamp duty land tax (SDL) supplement

From 1 April 2016 a higher rate of SDLT will be charged on purchase of additional residential properties costing £40,000 or more.  The higher rate will be 3% higher than the rates currently applying to residential purchase.  The supplement could add a considerable amount to the cost of an investment property, such as a buy-to-let, and where possible, it is advisable to ensure that purchases complete prior to 1 April 2016.  A delay of a few days could be very costly.

Diesel supplement to stay until 2021

 Where an employee is provided with a company car that is a diesel car, the appropriate percentage is subject to a 3% supplement as compared to a petrol car with the same CO2 emissions (subject to the cap at 37% of the list price).  The diesel supplement was to have been abolished from 6 April 2016.  It has been announced that this will not now happen and the supplement will be retained until 2021.

 

Higher employment allowance

The employment allowance which employers can set against the employer’s (secondary) Class 1 National Insurance that they must pay over to HMRC is being increased to £3,000 for 2016/17. The allowance is set at £2,000 for 2015/16.  However, from 2016/17 it will no longer be available to one-man companies where the director is the sole employee.

End of dispensation regime

A dispensation effectively allows employers and employees to ignore benefits and expenses for tax purposes where the resulting liability is exactly matched by a deduction so that no tax is actually due.  The dispensation process is abolished from 2016/17 and replaced with a statutory exemption for qualifying paid and reimbursed expenses.  Where the conditions for the exemption are met, the exemption is given automatically and there is no need to report the benefit or expense to HMRC.

End of the wear and tear allowance

Landlords who let furnished residential accommodation are currently able to claim a reduction to cover wear and tear.  This allowance, set at 10% of net rents, is available regardless of whether any items are replaced during the tax year.  However, 2015/16 is the last year for which the allowance will be available.  From 2016/17 (income tax) or 1 April 2016 (corporation tax) landlords will be able to claim a deduction for the actual cost of replacing furnishings under a new replacement furniture relief. Unlike the wear and tear allowance, the new relief will also be available to landlords who let properties unfurnished (but will not be available in respect of furnished holiday lettings).

New exemption for trivial benefits

The long awaited exemption for trivial benefits looks set to be introduced from 6 April 2016.  Employers will no longer need to report trivial benefits in kind costing £50 or less to HMRC.  However an annual cap of £300 will apply to trivial benefits provided to directors of close companies and member of their families who are also employees.

Expenses and benefits reform

From 6 April 2016 the rules for taxing non-cash benefits and expenses provided to employees are reformed.  From that date, the same rules apply to all employees, regardless of whether or not they are earning at a rate of £8,500 a year.  That means that a wide range of benefits, including popular benefits such as company cars and private medical insurance, will become taxable when provided to employees whose earnings rate (including the value of any benefits provided) is less than £8,500.

The abolition of the £8,500 threshold also means an end to form P9D.  While employers will still need to complete P9Ds for 2015/16, from 2016/17 where benefits are not payrolled, they will need to be returned on form P11D.

Planning ahead

Although the new rules do not apply until 2016/17, it is advisable to discuss your dividend extraction strategy with your tax adviser before the end of the 2015/16 tax year to formulate the most efficient strategy depending on your personal circumstances.  In most family company scenarios, the current rules are more generous than the new rules and it may be advantageous to pay dividends before 6 April 2016 rather than afterwards where retained profits are sufficient to facilitate this.

Under the current rules, as long as total income does not exceed the rate at which higher rate tax becomes payable (£42,385 for 2015/16) there is no further tax to pay on dividends.  If total income for 2015/16 is below that level, it may be worthwhile paying dividends before 6 April 2016 rather than afterwards to make the most of the opportunity to pay dividends tax free.

For higher and additional rate taxpayers, the availability of the £5,000 dividend allowance will mean that from 2016/17 they are able to enjoy the first £5,000 of dividends they receive tax-free.  However, higher and additional rate taxpayers who withdraw dividends in excess of that from a family company may benefit from paying some dividends before 6 April 2016 to take advantage of the lower dividend rates applying for 2015/16. Again it is advisable to speak to your tax adviser to determine what strategy works best for you.